S Fofana
LIBERTY UNIVERSITY S 2016
BUSI-530 DISCUSSION BOARD 2
Several factors, both internal and external, impact a company’s stock price and the
subsequent perceived valuation of a company. Sometimes that perceived value matches that of
the financial statements, and other times it is vastly different. Therefore, discuss the factors that
lead to a valuation of a company’s worth compared to that of the financial statements and how
company executives create the most value for all stakeholders.
Internal and External Factors
The stock price is often seen as the valuation of a company, however there are many
factors, internal and external, that are affected and reflected in a company’s stock price.
According to (Wolski, 2015) there are five factors that affect the stock market. These factors
include internal developments, world events, inflation and interest rates, exchange rates, and
hype. World events, such as the terrorists’ attacks against the United States on September 11,
2001, left investors wanting to invest in stock with less risks, hence buying less U.S. stocks.
As previously discussed, the valuation of a company is often times seen through a
business’ stock price. Since each business is unique, so are the methodologies used to determine
business value. One’s company must take into consideration the company’s ability to profit,
know its customer, as well as its efficiency, products/services, current and former economic
conditions, expected growth, in addition to other factors. The process will more than likely
include a review of the company’s financial statements and other internal documents, as well as,
a marketplace analysis with a competitive assessment.
Company Executives Creating the Most Value for Stakeholders
Executives can create the most value for stakeholders by making sound financial
decisions. Keeping all stakeholders in mind is a great benefit to profitability as well as the
company. Making decisions for the long term and not just for temporary solutions is another
aspect to optimize value for the stakeholder. Creating new and innovative ways to draw the
attention of potential investors and/or current investors can also be very beneficial to the
business. Executives are the catalyst to any financial situation be it good of bad. According to
(McKinsey and Company, 2011) “at different stages of a business’ life cycle, different owners
will be able to create more value. A family business may serve the company well in its early
days, but a venture capitalist might be the best owner to expand it, and a multinational when
global distribution is required.”
Conclusion
In conclusion, a business valuation can help uncover what need to be done to strengthen
the business and ensure its long term viability. It can also help one identify ways to increase the
value for the company and make the business more attractive to potential buyers. If one is
considering selling to internal or external buyers, an appropriate valuation of the business is
needed for in order for the ownership transition to be effective and successful. Whether one is
considering transitioning the ownership of the business now or in the near future, or simply to
adjust and enhance making business decisions, the valuation of the business will serve as the
most beneficial tool as it creates discussion to optimized situations for all stakeholders.
References
Wolski, C. 2015 Five Factors or Events that Affect the Stock Market, Retrieved From
http://smallbusiness.chron.com/five-factors-events-affect-stock-market-3384.html
McKinsey & Company. 2011. A better grasp of how value is created will help executives resist
short-term pressure. Retrieved from
http://www.managementexchange.com/blog/better-grasp-how-value-created-will-
help- executives-resist-short-term-pressure
